Personal loan offers you a breather when you have a tight financial situation. However, you need to do some smart work to make best use of the personal loan. While you can find many banks offering you personal loans, you need to identify the right bank that could offer tailor-made loans to suit your purpose. One of the most important factors you need to consider is the interest rate. Lower the interest, higher is your benefit. Here are some suggestions on how to get personal loans with lowest interest in the market.
Knowledge Is Bliss – Study The Market
Growing demands on one side and increasing competition on the other side, we find the financial market flooded with more and more borrowers and lenders. Hence, you need to take time to understand the market and identify the bank that offers the best interest rate. Your financial burden might tempt you to visit the first financial institution that you come across but it would do well to know what the competitors have to offer. Take some time to analyze the offers available, have your doubts clarified and zero in on the bank that offers the lowest interest rate on personal loans.
Extended Loan Period Might Cost You More
Once you identify the bank that offers the lowest interest rate, you need to plan your repayment schedule. A bank may offer loan for a prolonged period but the simple rule is to cut short the loan tenure to cut down the interest you pay.
For example, let us assume your monthly income is $3000 and you have taken a personal loan of $12000 from your bank with the interest for both tenures to be the same at 4%.
Now, let us make a calculation for two different loan tenures.
a) For a term of 5 years
Yearly Interest = 4%
Interest for 5 years = 20% (4% x 5 years)
Interest amount paid in 5 years = $2400 (Loan amount x Interest for 5 years = $12000 x 20%)
b) For a term of 2 years
Yearly Interest = 4%
Interest for 2 years = 8% (4% x 2 years)
Interest amount paid in 5 years = $960 (Loan amount x Interest for 2 years = $12000 x 8%)
The excess amount you pay for higher loan tenure is $1440 ($2400 – $960)
Remember The Simple Rule – Do Not Over-borrow
If your needs are lesser than what your loan eligibility is, the best thing would be to apply only what you require and not what the bank is willing to offer. While the idea of more loan amount might sound appealing, sit back and think for a moment the money you pay in terms of interest. You might enjoy some immediate benefits with more money than you need but you stand to lose in the long run in the form of loan interest.
Stay Ahead Of Your Schedule, If Possible
You could opt for a early closure of loan if you have some extra cash. This could save you some amount. However, you need to ensure that there is no penalty for early repayment. Some financial institutions charge you for early closure. Hence, before entering into a contract, have the terms and conditions explained to you by the banker.
Understanding the terms are essential before you sign up for a personal loan. With the right call, you could save some interest amount, which could help in the process of repayment.